On Tuesday government lauded the sale of the first tranche of its 38 per cent holding in Lloyds as having achieved a £61m profit.

In an interview with Channel 4 News, the day after Business Secretary Vince Cable warned of the danger of short- term growth fuelled by an old fashioned property boom, Mr Osborne also insisted we are a “very long way” from problems in the housing market.

Institutional investors bought shares in Lloyds Banking Group for 75p each, reducing the government’s holding in the company from 38.7 to 32.7 per cent.

The sale price represents a £61m profit on the 73.6p average price per share paid by the government in 2008 at the height of the financial crisis.

However, this figure does not take into account the cost of borrowing on the money markets in order to fund the purchase of the shares in the first place.

The value of Lloyds shares fell by 2 per cent in trading on Tuesday morning, as banking stocks took a hit ahead of an expected decline in the amount of money the Federal Reserve is pumping into the US economy through its quantitative easing programme.

Public participation

Although members of the public were not allowed to buy shares in Lloyds on this occasion, they are expected to participate at later stages of the bank’s re-privatisation.

The sale coincides with the Liberal Democrat conference and comes ahead of the Conservative conference, which starts on 29 September.

It was always going to be more psychologically important than anything else. As the government will no doubt have it tomorrow, the sale signals the start of a return to banking normality and fits in perfectly with the political narrative that the economy is now turning the corner. Read Siobhan Kennedy's blog.

The sell-off had been anticipated following the announcement in August that Lloyds had made a profit of £2.1bn in the first half of 2013. It made losses of £456m a year earlier.

Chancellor George Osborne said: “Five years ago the previous government forced British taxpayers to put a huge sum of money into bailing out the banks.

“That was a big ask of the British public. I have been determined ever since I became chancellor to get that money back for taxpayers.”

Debt

Mr Osborne said the taxpayer had made a profit from the sale that would be “used to reduce the national debt by over half a billion pounds”.

He added: “This is another step in the long journey in putting right what went so badly wrong in the British economy. It’s another step in repairing the banks. It’s another step in getting the money back for the taxpayer. And it’s another step in reducing our national debt. All of those things together are good news.”

‘Positive’

Analyst Jo Dickerson, at brokerage Jefferies, said the sale “was unequivocally positive” for Lloyds and RBS.

He added: “The simple manner in which the shares were placed will no doubt be welcomed by investors. We can only hope that the rest of the government’s stake in Lloyds and RBS is disposed of in such an effective manner.”